Brexit transitional period

Liaison Financial

The UK left the EU on 31 January and we are now in a transitional period. For the duration of that period, EU trade and VAT rules will continue to apply. This means that there is no change in VAT reporting relating to goods and services being acquired from or being despatched to another EU country.

The transitional period is due to terminate on 31 December 2020, but with the possibility of that date being extended depending on the progress of negotiating future trade arrangements with the EU. We will have to wait until a deal is agreed to understand what form of trading and VAT reporting will be in place after the end of the transitional period. However, one announcement was made in the Chancellor’s March Budget speech.  From 1 January 2021 (or a later date if transition is extended), postponed accounting will be introduced for all imports of goods including those from the EU. Postponed accounting means that the importer (including an NHS body) does not pay import VAT when the goods arrive at the UK port or airport: it is deferred.  Instead an entry is made in Box 2 of the VAT return to declare the import VAT. In most cases, the NHS will be unable to reclaim this VAT, but other fully taxable businesses will be able to make an entry in Box 4 of their VAT return to reclaim the same amount.

As further details of post-transitional period VAT accounting arrangements are released by HMRC, future Liaison Financial updates and webinars will cover this subject in more detail.